DeFi Liquidity

These terms describe automated pools where users deposit assets and earn fees while taking price divergence risk.

AMM

An AMM is a decentralized exchange model that uses liquidity pools and formulas instead of a traditional order book.

A liquidity pool is a smart-contract reserve of tokens that traders can swap against.

An LP token represents a user's share of assets deposited into a liquidity pool.

Impermanent loss is the opportunity cost that can occur when pooled token prices move apart.